RCWG Update to WMS July 11, 2012

Alternatives to Address Negative Prices At its June meeting, WMS directed RCWG to bring back something to vote on. RCWG developed three possible solutions for WMS to vote on: Short Term Not So Short Term Uber Long Term

Alternatives to Address Negative Prices Short Term Institute a negative price floor for the first 60 minutes after the deeply negative price occurs This should give the impacted Resource ample time to ramp down

Alternatives to Address Negative Prices Not So Short Term Prior to activating the constraint, ERCOT will issue either an emergency base point or LDL/HDL override to the appropriate Resource and then let SCED run. ERCOT will still need some tool that takes shift factors into account and provides the operator with the Resources and shift factors impacting the constraint so that the operator can issue either base point or LDL/HDL override. If the Resource eventually reaches its LSL, then it may request to come offline.

Alternative to Address Negative Prices Uber Long Term SCED handles it all via Nodal 2.0

Operational & Settlement Changes for RMR Resources At June WMS, ERCOT asked for guidance from the MOU segment on how they calculate costs for RMR units – specifically what ERCOT had been calling Return on Investment At RCWG meeting, BTU explained it as ROW Payment aka “in lieu of tax” - % of revenues within the corporate limits for all sales ERCOT agreed that MOUs should be allowed to recover these costs and is going to finalize and submit their NPRR

Fuel Costs in TPO & RT Mitigation Calculation FIP does not cover all costs Locational basis for gas units Below cost for coal units Fuels subgroup met and developed three alternative solutions Option 1: Including a Fixed Fuel Adder with Fuel Prices Option 2: Telemeter a Fuel Adder to add to Fuel Prices Option 3: Telemeter actual Fuel Prices (Preferred option of subgroup)

Fuel Costs in 3PO & RT Mitigation Calculation Option 1: Include a Fixed Fuel Adder with Fuel Prices Resource-specific fuel adder (FA) that would be included with the 3PO and Mitigated Cap. A static value that would (or could) change once per year or when fuel market conditions change, i.e. incremental increase/decrease with the cost of natural gas. Resource-specific or technology specific, although the latter may not be a viable option depending on the fuel contracts and location of fuel source. FA is only offered to Resources that have filed verifiable costs. Resources on generic costs would still receive the Index prices for fuel.

Fuel Costs in 3PO & RT Mitigation Calculation Options 2: Telemeter a Fuel Adder to Add to Fuel Prices Resources would telemeter DA individual FA to be included with the 3PO and Mitigated Cap. The FA would be based on actual prices paid, or a percentage above or below the current fuel price (FIP). The FA would be subject to an annual review of the approved caps (previously approved by ERCOT.) For example, FA must be within a specific range or pre-approved range subject to review by ERCOT.

Fuel Costs in 3PO & RT Mitigation Calculation Options 3: Telemeter Actual Fuel Prices (Preferred option of subgroup) Resources would telemeter in DA actual fuel prices included with the 3PO and Mitigated Cap. The prices would based on actual prices paid and subject to caps previously approved by ERCOT through the verifiable cost process. Details of this process could be incorporated into the VC Manual. Only Resources who have submitted verifiable costs may telemeter actual fuel prices. Resources relying on generic costs would be subject to index prices for calculating the 3PO and Mitigated Caps and Make Whole Payments.

Start Up and Min Run for QSGR 1.ERCOT will calculate a variable O&M value for each QSGR as described herein and in Appendix 7. 2.Startup cost values used for Real Time Mitigation are based on either Generic or approved O&M costs from a cold start position in Quick Start mode. 3.The expected minimum online time used to calculate the variable O&M term is equal to the minimum online time value shown in the Resource Asset Registration (RARF), unless the QSE has notified ERCOT that the expected minimum online time should be different than the minimum online time in the RARF. However, if the QSE request an expected minimum online time less than 1 hour, the QSGR must first have been approved for verifiable costs, otherwise, the expected minimum online time may not be less than one (1) hour. Following approval of verifiable costs for the Resource, the expected minimum online time may not be less than 30 minutes. 4.ERCOT will only calculate a new variable O&M seasonally whenever the expected minimum online time changes. 5.The HSL used in the variable O&M rate calculation shall be based on the average of all the seasonal HSLs as shown on the unit’s RARF. 6.QSEs must notify ERCOT seasonally, via the verifiable cost process, when there is a change to the RARF HSLs or minimum online time (or expected minimum online time). Notices must be given to ERCOT at least 15 days prior to the effective date for the new O&M value, which is the first day of the month for a particular season.

Start Up and Min Run for QSGR IMM raised an issue re: min run time. Suggesting L=2 or what is reflected in the RARF. WMS will need to vote on this issue. ERCOT would have to recalculate O&M for the mitigated offer cap based on a min run time of 2 hours – approx. 63 units. ERCOT has asked that it not be effective until August so that there is ample time to make the corrections.

Start Up and Min Run for QSGR The Mitigated Offer Cap Variable O&M rate for QSGRs is calculated as follow: Variable O&M rate ($/MWh) = Startup Costs ($) / G (MWh) Where G = average generation during Minimum up time (MWh) Startup Costs (a) = Approved Cold Startup O&M Costs (Verified or Standard) or Resource Specific Generic Startup O&M Costs and G (MWh) = P * HSL (MW) * L (Hr) Where P = 75%; HSL = High Sustained Limit (MW); L = Minimum Up Time (hr) (a) = Verified startup cost based on Resources starting under normal, not QSGR mode

Next Meeting – July 20